Pankaj Pandey backs smallcaps amid strong earnings momentum

In the ongoing earnings season, small-cap stocks have captured investors’ attention as some segments report strong growth and margin performance. In conversation with ET Now, Pankaj Pandey, Head of Research, ICICIdirect.com emphasizes, “Look, on the smaller cap side, pipe is something that we like. So we like the Astral numbers along with the Prince Pipes. I think anyone who has gotten limited or lesser exposure to the Jal Se Nal segment has done well. The CPVC segment has done well and our feeling is that we expect it to do much better in the second half of the CPVC segment and so that’s the segment that we like.”

Pandey added that many midcap and smallcap names remain stock-specific. “For example, NRB Bearing within the bearing companies we continue to like… this company is trading at half the valuation of their MNC peers. The numbers have been decent so we like this. We like the Defense name, for example Solar Industries. The defense segment is seeing quite good growth and has an order book of about 15,000 odd crores… so those stocks continue to look very attractive to us as well. JSL, also the EBITDA per tonne has been better than what we estimates… and any form of anti-dumping duty, if imposed, will provide significant relief.’

On smaller FMCG players, Pandey said, “Emami, we don’t have coverage. We are very selective when it comes to valuing FMCG companies, largely those that have a higher share of food. So for example, Tata Consumer or Marico, where we expect double-digit growth, are our preference… the combination of both volume and value is expected to deliver high single-digit growth which is not good enough to outperform the Nifty earnings growth that we have. Anticipating.”

On large cap FMCG names, Pandey noted, “Yes, overall on Britannia, it makes sense that I see this company having transformed from a biscuit company to a food and snack company. The margin profile has improved significantly from a mid-single digit margin to a mid-teen digit margin… given the earnings and even with the valuations of close to 45 to 50 odd percent on a forward basis, we see limited room for outperformance.”

He concluded that while FMCG stocks remain relatively stable, investors may find better structural opportunities in consumer durables rather than relying on discretionary spending to drive growth.